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Peru has been one of the fastest growing Latin American economies since 2002 and is known for its prudent fiscal policies. Structural reforms and sound macroeconomic policies created high growth, low inflation, and a greatly reduced poverty rates from 52.2 percent in 2005 to 20.5 percent in 2020. Peru’s Gross Domestic Product (GDP) averaged six percent growth from 2002 through 2013, then slowed to 2.5 to 4 percent, and in 2019 grew by 2.2 percent, significantly higher than the estimated 0.6 percent regional average. The International Monetary Fund (IMF) and the World Bank have estimated that Peru’s GDP will fall between 4.5 and 4.7 percent in 2020 due to the global COVID-19 crisis, but the World Bank forecasted a rebound with 7 percent growth in 2021. Peru’s government debt as a percentage of GDP was 36.5 percent in 2020. Its budget deficit was 1.6 percent of GDP with net international reserves of $68.3 billion. Inflation averaged 2.1 percent in 2019. Private investment comprised more than two-thirds of Peru’s total investment in 2019. The dollar came close to breaking an 18-year high in August 2020, hitting 3.58 soles to the dollar, its best since 2002. The dollar has appreciated nearly 8 percent against the sol since the beginning of 2020. Peru was reported the lowest country risk in the region, according to JP Morgan and may be better placed to recover than others in the region.
Peru is well integrated in the global economy through its multiple free trade agreements, including the United States-Peru Trade Promotion Agreement (PTPA), which entered into force in February 2009. In 2019, trade of goods between the United States and Peru totaled $15.8 billion, up from $9.1 billion in 2009, the year the PTPA entered into force. From 2009 to 2019, Peruvian exports of goods to the United States jumped from $4.2 billion to $6.1 billion while U.S. exports of goods to Peru jumped from $4.9 billion to $9.6 billion. The United States also enjoys a favorable trade balance in services; exports of services in 2018 to Peru amounted to $3.3 billion and contributed to a $1.2 billion services surplus the same year, figures for 2019 not yet available. Under the PTPA, U.S. consumer and industrial goods exports to Peru are no longer subject to tariffs. The PTPA eliminated tariffs on almost 90 percent of U.S. agricultural products exports, with remaining tariffs being phased out by 2026. Most imports (93 percent of codes) are also subject to an 18 percent value added tax (VAT), as are domestically produced goods. There are no quantitative import restrictions. The PTPA also established a secure, predictable legal framework for U.S. investors operating in Peru as well as intellectual property protections.
Due to the world novel coronavirus (COVID-19) pandemic, President Martin Vizcarra declared a state of emergency and mandatory countrywide quarantine on March 15, 2020 that the GOP extended several times. In April 2020 the Peruvian government announced a four-stage revival plan designed to gradually reopen its economy with new health protocols. To offset the anticipated economic damage, the Government of Peru (GOP) announced a $26 billion economic stimulus package to jumpstart the economy, which amounts to 12 percent of GDP. This economic package seemed well designed but has not had a significant effect to date.
Despite pioneering the region’s largest stimulus package, a strict lockdown ordered by the government of Peru (GOP), shocks to global supply chains, rising unemployment, and a fall in consumer spending caused the Peruvian economy to shrink by 40 percent in April 2020 compared to the same month last year and 33 percent in May with every major sector except agriculture severely contracting. Some sectors, like hotels and restaurants, experienced a free fall drop of 84 percent. The size of Peru’s informal economy, which accounts for some 70 percent of the country’s labor force, and its inability to function under lockdown exacerbated the economic downturn. From June to August, economic indicators slowly improved, driven by sustained growth in the agriculture sector and an increase in production and exports in the mining sector, particularly copper. Mining stocks erased loses as gold, silver, and copper prices increased. The employment situation remains bleak, with the number of people employed in Lima dropping by 55 percent during the three months ending in June. That number roughly translates into 2.69 million fewer people working than a year ago. The unemployment rate at the end of June was 16.7 percent, up from 6.3 percent a year ago. A second wave of COVID-19 cases sweeping through Peru in August prompted the GOP to reimpose additional lockdown measures, potentially reversing the economy’s positive trajectory.